Friday, November 23, 2007

Belgian political deadlock threatens Foreign Direct Investment

Belgium's business leaders fear a five-month-old political stalemate will start driving away foreign investors, who put more money into the country last year than they did into China.

Squabbling between Dutch- and French-speaking parties since the June 10 election, prompting speculation the country could break up, is also stirring concern that Belgium will lose control over its budget, undoing the achievements of a decade of fiscal discipline that has slashed its public debt burden.

"We are hearing a lot of investor hesitation," said Marcel Claes, chief executive of the American Chamber of Commerce in Belgium. "The difference between Belgium, the Netherlands and Germany is limited, so the uncertainty could swing the balance."

While no companies are facing bankruptcy as a direct result of the disputes between Belgium's linguistic communities, the governor of the central bank, Guy Quaden, warned on Tuesday of real consequences if the political crisis dragged on.

"For the moment, it is mainly a problem of damaged image, but our politicians should beware. The economic consequences could be one day more severe," Quaden told a newspaper.

Belgium beat China to fourth place in foreign direct investment in 2006, according to UNCTAD, drawing in $72 billion to industries such as chemicals and logistics. The United States attracted most FDI, followed by Britain and France.

Already financial market investors have attached a risk premium to Belgium. The extra yield they require to hold its 10-year government bonds has risen to 19 basis points over the euro zone's benchmark Bunds from 6 in June, and they cite the deadlock as a factor....MORE